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Innovation, by Order of the Kremlin

Yevgeny Kaspersky, a technology entrepreneur, wants the scientific city to succeed but says the state's role should be limited to offering tax breaks and infrastructure.Credit
James Hill for The New York Times

MOSCOW

AROUND the time that Apple Computer was making it big in California, Andrey Shtorkh was getting a first-hand look at the Soviet approach to high tech: he guarded the fence keeping scientists inside Sverdlovsk-45, one of the country’s secret scientific cities, deep in the Ural Mountains.

Ostensibly, the cities were closed to guard against spies. Its walls also kept scientists inside, and everybody else in the Soviet Union out. While many people in the country went hungry, the scientific centers were islands of well-being, where store shelves groaned with imported food and other goodies.

Security in these scientific islands was so tight, though, that even children wore badges. Relatives had to apply months in advance for permission to visit. “It was a prison, a closed city in every sense,” recalls Mr. Shtorkh, then a young soldier.

Today, he is the publicist for an improbable new venture. The Russian government, hoping to diversify its economy away from oil, is building the first new scientific city since the collapse of the Soviet Union. Even more improbably, it is modeled, officials say, on Silicon Valley.

The site, still nameless and near a village outside Moscow, is conceived not as a secretive, numbered city in Siberia but as an attempt to duplicate the vibrancy and entrepreneurial spirit of America’s technology hotbed.

Russia’s rich scientific traditions and poor record of converting ideas into marketable products are both undisputed, cited as causes for the Soviet collapse and crippling dependence on mining and petroleum. Not surprisingly, then, its leaders look longingly at Silicon Valley.

“The whole country needs some sort of breakthrough,” Viktor F. Vekselberg, the Russian business oligarch appointed co-director of the project, said in an interview. Mr. Vekselberg was chosen in part because of his investments in solar power, an unusual venture for one of the oligarchs who made fortunes in commodities. “The founding of the innovation city, in form and substance,” he says, “could be a launching pad for the country as a whole.”

He calls the city “a test run of business models” to rebuild Russian science for the capitalist era.

Once developed, the site is intended to incubate scientific ideas using generous tax holidays and government grants until the start-ups can become profitable companies. Its backers in government and the private sector describe it as an effort to blend the Soviet tradition of forming scientific towns with Western models of encouraging technology ventures around universities.

Skeptics see a deeper strain of Russian tradition: trying to catch up with the West by wielding the power of the state. Looking askance at the incongruous blend of the Kremlin’s will and the openness prized by Silicon Valley, they refer jokingly to the new city as Cupertino-2.

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A Russian Silicon Valley is being built from scratch. Viktor Vekselberg will be co-director of the project.Credit
Natalia Kolenikova/Agence France-Presse — Getty Images

“We should not expect the same mechanisms that work in Silicon Valley to work in Russia,” says Evgeny V. Zaytsev, a co-founder of Helix Ventures, a life sciences venture capital company based in Palo Alto, Calif., and a member of the advisory board of AmBar, the Russian business association in the real Silicon Valley. “The government will be involved, because that is the way it works in Russia.”

Indeed, the new city was conceived by what is called the Commission on Modernization, deep within the Kremlin bureaucracy.

The Russian government, though, has a long and conflicted relationship with entrepreneurs and scientists. There is still a thriving tradition of government crackdowns on private business with capricious enforcement of the tax laws, making entrepreneurship difficult.

For now, Russia’s hoped-for Silicon Valley is a panorama of muddy fields, birch groves, warehouses and storage sheds belonging to a state agricultural institute. The site was chosen for its proximity to another ambitious project, the Skolkovo business school, housed in a futuristic building financed by millions in donations from the oligarchs, including Mr. Vekselberg.

While similar ideas have been bandied about for years, this one was approved — and blessed with $200 million in government money — within a month of a visit in January to the Massachusetts Institute of Technology by senior Kremlin leaders, including Vladislav Surkov, the powerful deputy director of the presidential administration. Mr. Surkov says the new city will isolate new businesses from the bureaucracy that handcuffs the Russian economy today.

A government-financed foundation will build and run the city. Directors of existing state-financed tech companies — including Rusnano, a nanotechnology fund headed by Anatoly Chubais, a leading architect of Russia’s controversial post-Soviet privatization — will serve on the board and contribute money. Separately, a scientific council will decide which companies can locate at the site. The infrastructure should be in place within three years, Mr. Vekselberg says.

Mr. Zaytsev grew up in the Siberian city of Barnaul, got an M.B.A. at Stanford and worked for venture capital firms before founding his own. He approves of the experimental spirit of the new city. But he is skeptical that bureaucrats will be able to channel the money in ways that will transform Russia into a competitive force in consumer technology. Rusnano and the other state-financed venture businesses have had few successes thus far.

“The less control, the better,” Mr. Zaytsev says. If the government “controls the venture funds, no real venture funds will come.”

FOR a time, the Russian elite embraced petroleum as the ticket to restore the country’s domestic economy, its standing in the world and its power in regional politics. Vladimir V. Putin, then the president, took to citing the stock price of Gazprom as a national accomplishment.

But Gazprom, a company that inherited title to the world’s largest natural gas reserves, is now valued by investors at well below Apple, a company that sprang from a garage.

Indeed, the Kremlin’s sensitivity to its trailing position in the wired world was on full display this year at the World Economic Forum, in Davos, Switzerland. Mr. Putin, now the prime minister, and Michael S. Dell found themselves on the same discussion panel, and Mr. Dell asked in passing how he might help Russia develop its information technology sector.

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The scientific city will be near the Skolkovo business school, which received millions in donations from Russia's business oligarchs.Credit
James Hill for The New York Times

For nationalistic Russian officials, it only rubs salt in the wounds that Silicon Valley companies so easily recruit bright Russian scientists. AmBar, the Russian business association, estimates that 30,000 to 60,000 Russian-speaking professionals work in the San Francisco Bay Area.

A marquee name in the high-tech world, the Google co-founder Sergei Brin, immigrated to the United States from Russia with his parents when he was a child. Had Russia been a different place, perhaps Mr. Brin might have started Google there instead of in Silicon Valley.

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Russia is hardly the first country to seize on the idea of copying Silicon Valley. In Malaysia, for example, a jungle has been cleared for a computer city called Cyberjaya that is a self-declared effort to imitate the south Bay Area. China has a cluster of high tech in Tianjin, outside Beijing, and France in Sophia Antipolis, near Nice, all created with an infusion of government aid — and all eventually successful in attracting and fostering private business.

In the midst of the oil boom, Russian officials suggested luring back Russian talent by building a gated residential community outside Moscow, designed to look like an American suburb. What is it about life in Palo Alto, they seemed to be asking, that we cannot duplicate in oil-rich Russia?

The new effort, though, goes well beyond good housing. It also embraced the idea of encouraging new companies to commercialize the work done at university laboratories.

Russian officials looked at Asian techno-parks with favorable tax treatment and established four of their own — in Tomsk, Dubna, Zelenograd and St. Petersburg. Three were based in former closed scientific cities.

The visions for Russia’s Silicon Valley, though, are grander still. A proposed law would liberalize a host of tax, customs and immigration rules in ways that businesses have wanted for years. For example, the planners say they have studied the role of streamlined immigration rules in drawing talent to Silicon Valley.

President Dmitri A. Medvedev appointed Mr. Vekselberg the co-director of the project, a position that will probably evolve into one of two directors of the foundation to manage the new city. As a first order of business, he is to recruit a foreign businessman to co-direct the city with him; he has so far sent out about 100 letters to foreign business contacts who are potential candidates.

For now, his own money is not tied up in the site. But Mr. Vekselberg’s Renova group, whose primary assets are in metals and oil, has a significant investment in solar energy through a 44 percent stake in Oerlikon, a thin-film solar panel maker based in Switzerland.

Mr. Vekselberg said he was surprised by his appointment but is now a true believer in the project and would like to attract a mix of start-ups, established companies and academic institutions. Mr. Medvedev, in a televised meeting about the new city, emphasized commercialization: “The new technologies which we are creating are not toys for eggheads,” he said.

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Credit
The New York Times

The new town is intended to advance five scientific priorities laid out by Mr. Medvedev — communications, biomedicine, space, nuclear power and energy conservation — and to encourage cross-fertilization among disciplines. Property will not be owned, but rented, and the government will offer grants for scientists who struggle to find private financing.

“In California, the climate is beautiful and they don’t have the ridiculous problems of Russia,” Mr. Shtorkh said. To compete, he said, Russia will form a place apart for scientists. “They should be isolated from our reality,” he added.

Officials have painted the Russian Silicon Valley in sweeping ideological terms. Russia, they say, will again be defined by the depth of its scientific talent, rather than by its mines and wells. The government has appointed as scientific director a Nobel laureate in physics, Zhores Alferov — whose discoveries in the 1950s were cited by the Nobel committee as paving the way for cellphones (which the Soviet Union, incidentally, never made).

HIGH-TECH entrepreneurs who stayed in Russia are more skeptical. Yevgeny Kaspersky, founder of the Kaspersky Lab, an antivirus company, says that he is pulling for the site to succeed but that the government should confine its role to offering tax breaks and infrastructure.

He started his own business in Moscow in the 1990s, working nights on his hobby of capturing and studying computer viruses, but he benefited from a special economic zone for start-ups only when he opened an office in Tianjin in 2003. The Chinese government gave him free office space for a year and a tax holiday.

“Russia has a lot of talented software engineers but not a lot of successful businesses,” he said. “People still have an iron curtain in their minds.”

The old scientific cities were entangled with the military, but they also reflected futuristic and utopian strains in Soviet thinking. Isolating scientists in Siberian enclaves — removed from the struggle for groceries that defined many other citizens’ lives — and provisioning them with laboratories yielded results in the Soviet nuclear weapons and space programs. With talented, low-cost work forces, the cities remain attractive, even to foreign investors: I.B.M., Intel and others have opened offices and labs in formerly closed Russian cities.

The problem, critics say, is that the government today intends to corral Russian engineers and scientists without knowing what it wants. The model, instead, should be maximum exposure to competition and the vagaries of consumer demand.

“They don’t understand what they need,” said an adviser to the Kremlin, who was not authorized to speak publicly. “They don’t need another atomic bomb, and they don’t need new televisions.”

The planners, meanwhile, are looking for a name. One suggestion was “Innograd,” for Innovation City, echoing with a self-deprecating humor the boisterous Soviet nomenclature for new ventures like “Magnitogorsk,” or Magnetic Mountain — the name given to a gigantic steel mill in the Ural Mountains.

Another option was “Gorod Solntsa” or Sun City, a reference to the nearby Moscow neighborhood of Solntsovo. This suggestion, though, may undermine the idea of turning a new page, as Solntsovo is also the name of a famous organized-crime group from the 1990s that got its start in the area.